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COVID-19: Loan Schemes Under Scrutiny After Rise In Fraud Claims

In a bid to reduce the devastating impact of the Coronavirus pandemic on UK businesses and in particular to SMEs, the government launched a number of loan schemes earlier this year, including the Coronavirus Business Interruption Loan Scheme and the Bounce Back Loan Scheme. These schemes were introduced with the aim of providing some much-needed financial support to keep businesses afloat.

Whilst the government has been praised for its intervention and introduction of these schemes, there have been an increasing number of reports that the schemes are being misused and exploited by unscrupulous individuals seeking to make profit at the expense of the public purse.

Attractive loans for SME businesses

The Coronavirus Business Interruption Loan Scheme (the CBIL Scheme), introduced by the government in March 2020, provides financial support to UK based SME businesses with turnovers of up to £45m that were trading successfully before the Coronavirus, but are now losing revenue and seeing their cashflow disrupted as a result of the pandemic. The loans range from £50,000 up to a maximum of £5m.

To incentivise lenders, the government guarantees 80% of the loan; they also agree to foot the interest bill and any fees on the loan for the first 12 months – thus providing companies with numerous benefits as well as a fall back in the event that they default.

To be eligible under the CBIL Scheme, businesses must meet the following criteria:

  • They must be a UK registered business that has been adversely affected by the Coronavirus;
  • They must have a turnover of over £200,000 with a trading history of 3 years minimum and 50% of their turnover must be from trading activity (i.e. not from investments);
  • The loan must be for business purposes and for trading in the UK; and
  • They must not be a “business in difficulty”.

The government recently announced changes to the “business in difficulty” criteria, and from 25 September 2020 companies will only need to show that they were not a “business in difficulty” as at the date of their application (the prior rules required them to show this did not apply as of 31 December 2019).

This welcome change has provided companies with significant flexibility in meeting the criteria, as companies will have the option of restructuring their finances before their application so that they become eligible. Unsurprisingly, it is thought that the change will result in a significant increase in new applications before the closure of the CBIL Scheme.

The Bounce Back Loan Scheme (the BBL Scheme) provides financial support to small and medium sized businesses, offering loans of between £2,000 to £50,000 (restricted to 25% of a business’ turnover) for those who have been negatively affected by the pandemic. With this loan, the government guarantees 100% of the loan and again, there are no fees or interest to pay in the first 12 months.

To support businesses further, the Chancellor recently announced more flexibility for repaying bounce back loans under the ‘Pay As You Grow’ Scheme – meaning new and existing borrowers can choose to extend the term of their loan to cut monthly repayments.

The schemes were both recently extended and will be now open for applications until 30 November 2020.

Are the Coronavirus loan schemes being misused by fraudsters?

According to the government’s statistics, as at 20 September 2020, the CBIL Scheme had attracted over 66,000 successful applicants and over £15 billion in loans have been issued, whilst the BBL Scheme recorded over 1.26 million successful applications, with over £38 billion issued in loans.  Interestingly, the government has not declared any cap on such loans.

Whilst of course this is a positive measure by the government, and provides a crucial lifeline for many struggling businesses, it has been argued that not enough checks and due diligence are being carried out against applicant companies before the loans under the schemes are issued, thus leaving the schemes exposed to fraudulent claims ultimately at the public’s expense.

In particular, the applications are effectively self-certified, meaning companies are more likely to get away with making false or inaccurate representations, such as the value of properties being offered as security.


Controversially, there have been claims that businesses are using the bounce back loans to purchase luxury high value “supercars” and other high end technology, whilst others are reported to be claiming the money via dormant subsidiary companies, both of which are clearly not what the schemes were intended for.


In addition, the first arrests and freezing orders were reported to have been made in July 2020 in connection with fraudulent applications to the BBL Scheme, where applications for the scheme were allegedly made using fake companies.

As a result of this, there have been significant concerns raised by anti-fraud organisations and white-collar crime experts who are calling on the government to act immediately to deter fraudsters, such as a requirement for the government to publish a public record of all recipients of the loans.

How to protect your business

Unfortunately, the impact of such activity will inevitably increase the level of suspicion and scrutiny against all businesses who have applied for loans under the schemes, and not just those that have deliberately committed fraud.

The Treasury has warned that anyone abusing the schemes will face prosecution and the full force of the law. In response to the criticism, the government will be keen to publicly expose those businesses that have deliberately abused the schemes during this unprecedented time of crisis, and they have threatened criminal penalties and reputational damage to those culpable.

It is therefore paramount that businesses fully understand and comply with the lender’s requirements in providing accurate information and can back it up with supporting documentation in the event that they are audited or investigated.

Directors may also be exposed personally in the event the company is subjected to insolvency. Businesses will be in a far better position if they undertake their own internal checks and rectify any genuine mistakes as early as possible to reduce exposure.

Whilst these matters may not be at the fore-front at a time when the priority is to rescue a business, it is only a question of time (irrespective of the cause of the business collapse) before external parties start looking closely at the point when the application was made and whether accurate information was provided.

Equally, the government is unlikely to provide its “guarantee” to the lender if the lender failed to undertake diligent and extended checks especially when they had cause to do so. Regrettably what is inevitable is a large-scale default arising from the collapse of businesses and the certainty of action the government will take against those who have abused and taken advantage of the generous financial assistance it has provided.

If you require advice in relation to any litigation matter, or if you or your business has any legal issues relating to the Coronavirus pandemic, then Blacks Solicitors can assist. Please email or call us on 0113 227 9316 today.


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Luke Patel

Partner and Head of Dispute Resolution
Commercial Dispute Resolution
0113 227 9316
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Luke Patel Blacks Solicitors LLP